|9 Months Ended|
Sep. 30, 2020
Debt is summarized as follows:
Margin Loan Facility
On August 12, 2020, a bankruptcy remote wholly owned subsidiary of the Company (“SPV”), entered into Amendment No. 3 to its multi-draw margin loan credit facility and Amendment No. 2 to its Collateral Account Control Agreement (the “Third Amendment”), which amends SPV’s margin loan agreement, dated as of August 31, 2017 (as amended by Amendment No. 1 to Margin Loan Agreement, dated as of August 24, 2018, and as further amended by Amendment No. 2 to Margin Loan Agreement and Amendment No. 1 to Collateral Account Control Agreement, dated August 19, 2019, the “Existing Margin Loan Agreement”; the Existing Margin Loan Agreement, as amended by the Third Amendment, the “Margin Loan Agreement”), with Wilmington Trust, National Association, as the administrative agent, BNP Paribas, as the calculation agent, and the lenders party thereto. The Margin Loan Agreement provides for, among other things, a multi-draw term loan credit facility (the “Margin Loan Facility”) in an aggregate principal amount of up to $2.3 billion, including the Incremental Facility (as defined below). SPV’s obligations under the Margin Loan Facility are secured by first priority liens on the shares of Charter owned by SPV.
SPV is permitted, subject to certain funding conditions, to borrow term loans up to an aggregate principal amount equal to $1.0 billion. SPV will also have the ability to borrow up to $1.3 billion of additional loans under the Margin Loan Facility (the “Incremental Facility” and the loans made under the Incremental Facility, the “Additional Loans”). The borrowings under the Incremental Facility are subject to certain conditions precedent, including the completion of the Combination (as defined in note 1 to the accompanying condensed consolidated financial statements). SPV drew down an additional $25 million on July 31, 2020 and an additional $100 million on August 20, 2020 on the Margin Loan Facility. Outstanding borrowings under the respective margin loan agreements were $700 million and $575 million as of September 30, 2020 and December 31, 2019, respectively. As of September 30, 2020, SPV was permitted to borrow an additional $300 million, which may be drawn through August 12, 2021. The maturity date of the loans under the Margin Loan Agreement is August 24, 2022 (except for any Additional Loans incurred thereunder to the extent SPV and the incremental lenders agree to a later maturity date). Borrowings under the Margin Loan Agreement bear interest at the three-month LIBOR rate plus a per annum spread of 1.5%, increasing to a per annum spread of 1.85% from and after the completion of the Combination. The Margin Loan Agreement also provides for customary LIBOR replacement provisions. Borrowings outstanding under this margin loan bore interest at a rate of 1.72% per annum at September 30, 2020 and is payable quarterly in arrears.
The Margin Loan Agreement contains various affirmative and negative covenants that restrict the activities of the SPV (and, in some cases, the Company and its subsidiaries with respect to shares of Charter owned by the Company and its subsidiaries). The Margin Loan Agreement does not include any financial covenants. The Margin Loan Agreement also contains restrictions related to additional indebtedness and events of default customary for margin loans of this type.
SPV’s obligations under the Margin Loan Agreement are secured by first priority liens on a portion of the Company’s ownership interest in Charter, sufficient for SPV to meet the loan to value requirements under the Margin Loan
Agreement. The Margin Loan Agreement indicates that no lender party shall have any voting rights with respect to the shares transferred, except to the extent that a lender party buys any shares in a sale or other disposition made pursuant to the terms of the loan agreements. As of September 30, 2020, 6.8 million shares of Charter with a value of $4.2 billion were pledged as collateral pursuant to the Margin Loan Agreement.
Exchangeable Senior Debentures
On August 27, 2020, the Company closed a private offering of $575 million aggregate original principal amount of its 2.75% Exchangeable Senior Debentures due 2050 (the “Debentures”), including Debentures with an aggregate original principal amount of $75 million issued pursuant to the exercise of an option granted to the initial purchasers. Upon an exchange of Debentures, the Company, at its election, may deliver shares of Charter Class A common stock, the value thereof in cash, or any combination of shares of Charter Class A common stock and cash. Initially, 1.1661 shares of Charter Class A common stock are attributable to each $1,000 original principal amount of Debentures, representing an initial exchange price of approximately $857.56 for each share of Charter Class A common stock. A total of 670,507 shares of Charter Class A common stock are attributable to the Debentures. Interest is payable quarterly on March 31, June 30, September 30 and December 31 of each year, commencing December 31, 2020. The Debentures may be redeemed by the Company, in whole or in part, on or after October 5, 2023. Holders of the Debentures also have the right to require the Company to purchase their Debentures on October 5, 2023. The redemption and purchase price will generally equal 100% of the adjusted principal amount of the Debentures plus accrued and unpaid interest to the redemption date, plus any final period distribution. The Company has elected to account for the Debentures using the fair value option. Accordingly, changes in the fair value of these instruments are recognized as unrealized gains (losses) in the accompanying condensed consolidated statements of operations. See note 3 for information related to unrealized gains (losses) on debt measured at fair value. As of September 30, 2020, a holder of the Debentures does not have the ability to exchange and, accordingly, the Debentures are classified as long-term debt in the condensed consolidated balance sheets.
The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef